DELAFIELD, Wis. (Stockpickr) -- Short-sellers hate being caught short a stock that reports a blowout quarter. When this happens, we often see a tradable short squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it's never a great idea to stay short once a bullish earnings report sparks a big short-covering rally.

This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short time frame that your profits add up quickly.

That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you're letting the trend emerge after the market has digested all of the news.

Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move by waiting. That's why it can be worth betting prior to the report -- but only if the stock is acting technically very bullish and you have a very strong conviction that it is going to rip higher. Just remember that even when you have that conviction and have done your due diligence, the stock can still get hammered if Wall Street doesn't like the numbers or guidance.

If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out for a heavily shorted stock and then jump in and trade the prevailing trend.

With that in mind, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.

ITT Educational Services

My first earnings short-squeeze play is postsecondary degree program provider ITT Educational Services(ESI) - Get Report, which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect ITT Educational Services to report revenue of $211.60 million on earnings of 10 cents per share.

The current short interest as a percentage of the float for ITT Educational Services is extremely high at 63%. That means that out of the 16.68 million shares in the tradable float, 10.52 million shares are sold short by the bears. This is a monster short-interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a large short-covering rally for shares of ITT Educational Services post-earnings that forces the bears to cover some of their positions.

From a technical perspective, ITT Educational Services is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last month, with shares moving higher from its low of $3.60 to its recent high of $5.54 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ITT Educational Services within range of triggering a near-term breakout trade post-earnings.

If you're bullish on ITT Educational Services, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $5.15 to $5.54 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.60 million shares. If that breakout triggers post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $6.62 to its 200-day at $6.82, or even $7.20 to $8 a share.

I would simply avoid ITT Educational Services or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 20-day moving average at $4.28 and its 50-day moving average at $4.04 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $3.60 to $3.32 a share.

Outerwall

Another potential earnings short-squeeze trading opportunity is automated retail solutions provider Outerwall (OUTR) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Outerwall to report revenue $561.15 million on earnings of $1.68 per share.

The current short interest as a percentage of the float for Outerwall is extremely high at 44.7%. That means that out of the 15.68 million shares in the tradable float, 7.01 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.4%, or by around 98,000 shares. If bears get caught pressing their bets into a strong quarter, then this stock could easily spike sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, Outerwall is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last three months, with shares moving higher from its low of $64.75 to its recent high of $85.26 share. During that uptrend, shares of Outerwall have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on Outerwall, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high of $85.26 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 490,187 shares. If that breakout gets underway post-earnings, then this stock will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that mover are $95 to $100, or even $105 a share.

I would simply avoid Outerwall or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day moving average of $78.53 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $75.33 to $74.51, or even its 200-day moving average of $69.16 a share.

Stratasys

Another potential earnings short-squeeze candidate is 3D printing player Stratasys(SSYS) - Get Report, which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Stratasys to report revenue of $182.06 million on earnings of 15 cents per share.

The current short interest as a percentage of the float for Stratasys is extremely high at 27.1%. That means that out of the 47.50 million shares in the tradable float, 12.88 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12%, or by around 1.38 million shares. If bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Stratasys is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock broke out on Monday above some near-term overhead resistance at $34.75 a share with above-average volume. That breakout is now starting to push shares of Stratasys within range of triggering a much bigger breakout trade that could trigger post-earnings.

If you're bullish on Stratasys, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $38.10 to $39.45 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.64 million shares. If that breakout materializes post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance level at its gap-down-day high from April at $43.20 a share. Any high-volume move above that level will then give this stock a chance to re-fill some of that gap-down-day zone that started over $50 a share.

I would avoid Stratasys or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $33.97 to around $33 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its major support levels at $31.88 to $30.95, or even $25 a share.

Control4

Another earnings short-squeeze prospect is automation and control systems for the connected home provider Control4(CTRL) - Get Report, which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Control4 to report revenue of $42.36 million on earnings of 14 cents per share.

The current short interest as a percentage of the float for Control4 is very high at 19.3%. That means that out of 18.30 million shares in the tradable float, 3.54 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 10%, or by around 320,000 shares. If bears get caught pressing their bets into a bullish quarter, then this stock could easily soar sharply higher post-earnings as the bears move quick to cover some of their trades.

From a technical perspective, Control4 is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been consolidating and trending sideways over the last few weeks, with shares moving between $7.26 on the downside and $7.84 on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could easily trigger a big breakout trade for shares of Control4.

If you're bullish on Control4, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $7.68 to its 20-day at $7.82 and then above more resistance levels at $7.84 to $8 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 306,014 shares. If that breakout develops post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $8.78 to $9, or even $9.50 to $10 a share.

I would simply avoid Control4 or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its all-time low of $7.26 a share with high volume. If we get that move, then this stock will set up to enter new all-time-low territory, which is bearish technical price action. Some possible downside targets off that move are $6.50 to $6, or even $5.50 a share.

SolarCity

My final earnings short-squeeze trade idea is solar energy player SolarCity (SCTY) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect SolarCity to report revenue of $90.16 million on a loss of $1.57 per share.

The current short interest as a percentage of the float for SolarCity is extremely high at 47.3%. That means that out of the 49.08 million shares in the tradable float, 23.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.1%, or by 471,000 shares. If bears get caught pressing their bets into a strong quarter, then this stock could easily jump sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, SolarCity is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $50.84 to its recent high of $56.96 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SolarCity within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on SolarCity, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at its 50-day moving average of $56.60 a share and then above more key resistance levels at $56.96 to $58.40 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.18 million shares. If that breakout gets set off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $62 to $63.79, or even $70 a share.

I would avoid SolarCity or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $53.42 and below some key near-term support levels at $51.62 to $50.84 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $49.03 to $46.69 a share.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.